Why I’m Mad We Got a Huge Tax Refund

Even though I’m a huge money nerd the thought of doing my own taxes gives me a headache. Our finances were a little more complicated last year with my unemployment and new investments we started with Betterment, Vanguard, and Lending Club. While I’ve heard that programs such as TurboTax makes doing your taxes pretty simple, I’ve never tried it. I figure that paying a tax professional is worth the cost of sorting through all our paperwork. Plus, they more likely will be able to maximize our deductions to limit how much we have to pay. 🙂

This year we got a pretty sizable tax refund to the tune of $4000.

Sounds pretty sweet, right?

Kinda. Sorta.

While most people celebrate the fact that they got a fat tax refund, I’m the complete opposite. Don’t get me wrong – not having to pay taxes is and will always be awesome. But I’d rather have no refund. This is why tax refunds suck:

It’s Your Money in the First Place.
When I started working I was always told to claim zero exemptions so I can have a big fat tax refund at the end of they year. What I didn’t realize until recently is that by doing this you’re basically overpaying your taxes. You’re essentially giving the government an interest free loan. While that logic works for some people so they can use it as a forced savings, this budget nerd would rather have that money up front.

At $4000, that’s around $333 a month we didn’t have last year that could have gone to my daughters education, retirement, vacation, or even the latest iPad (that’s used, refurbished, and a generation old).

I understand that not having to pay when doing taxes sounds great, but I honestly would rather pay than get a refund. As long as it’s not some crazy amount like $10k (shout out to you entrepreneurs!). At least in this case we would be getting extra money throughout the year and would be able to put those funds to good use. We have a pretty decent amount in savings in the event that we have a huge tax bill in the future.

What We Did With Our Tax Refund
Since we had a crazy few weeks where we had to get a new (used) car and a new (used) phone, all the money we got from taxes went back into rebuilding our emergency fund. To those that think I’m a Scrooge and cheapskate for not spending some of our refund towards something fun doesn’t know me that well. For me, saving money IS fun! (Am I the only one that gets excited about the thought of financial security?)

We did the following things since we did our taxes: road trip to the bay area, bought a new iPad (shout out to my friend Dan for the hookup), and went to an I Love the 90s Concert. See, Vic isn’t always a miser who spends no money 🙂

Thinking About Next Year’s Taxes
This year the goal is to have NO TAX refund. I thought I had it right last year when I filled out the tax withholding calculator from the IRS website. There probably was something I didn’t account for that when doing the calculations such as extra investments or daycare costs. I also didn’t change anything when I got laid off last October which may have affected our refund. This year I’ll change our withholding again to see if we can limit our refund this year.

I may also convert some if not all of my IRA to a Roth IRA since I should have a lower income this year because I didn’t start working until the end of February. I also started putting 10% into my 401k at my new job so my taxable income should be somewhat low. Since getting laid off showed us that we can survive on my wife’s paycheck alone, I’ll most likely increase both of our 401ks later on in the year to bring our income even lower.

This time next year, I hope I can write a post about how my tax refund was $18. Now that would be awesome.

We have been on the other side of the spectrum recently — owed $9K to the feds last year, $8K this year. Yeah, ouch. But even still, I’d rather pay than get a refund, for all the same reasons you said! We have a life happens fund to cover the tax liability, but at least we got to decide how to keep that money over the last year instead of giving a free loan to the IRS! 🙂

My refund this year was between $50 and $100 due to my excellent tax planning spreadsheet. That’s the best I’ve ever done! My goal is around $100 to allow for a tiny bit of buffer. My boyfriend did some tax loss harvesting on 12/31 so his refund was much larger than I forecasted it should have been.

Hi Vic, I am totally with on the whole saving money is fun bit. I also agree getting a tax refund is like giving the government an interest free loan. My husband and I got a pretty big refund as well this year of $5,000. That was mostly because of our unused tuition credits (while in school and unemployed) and charitable donations. Not sure how the tax system works in the states, but in Canada there is no place to include these amounts on a TD1. Good post!

We did the same thing as you with our refund…stuck it in the emergency fund and are currently pretending that it doesn’t exist. Keeping all that money up front would certainly be better but with the extra money I’m getting once a year for student loan repayment, I have yet to figure out how get our refund closer to zero without the worry of ending up owing money. I just need to get over that fear and do it; maybe I’ll play around with the IRS calculator (thanks for the link!) and see what I can come up with. Thanks Vic!

I totally agree with you. It`s money that you may have had to borrow (and pay interest) rather than investing it and earning interest yourself. Still, the other side of me still sees it as a windfall if that happens…

Too bad I wasn’t thinking much about this stuff a month ago when I filled out tax forms for my new job…I claimed only 1 exemption so will probably get a whole bunch of money back. I’ve been thinking recently of getting this changed, but then I realized that my freelance income this year will come to me untaxed (i.e. I will get 100% of it and have to pay taxes later), so depending on how much I make in freelance income, maybe that will balance it out? It’s hard to know though — taxes are so unpredictable!

I think I’ll be referring most of my clients to this blog! Being an accountant, you have no idea the number of disagreements I have gotten into trying to explain this very thing to people. I’m not one to get into disagreements in the first place, but so many people genuinely believe that they are having money taken away from them. Some have even accused me of trying to steal their money just by explaining this to them!

Vic, you’re definitely right in your thought NOT to have a refund at the end of the year.

Having said that, I’ve been on both sides of the equation, and it is a little fun to get thousands of dollars back from Uncle Sam for a change. Occasionally there will be years where it’s hard to anticipate your final tax liability. But, if it’s consistent year after year, stop it!! 🙂

It’s funny how conditioned we are to think it’s sooo much better to get a check from the IRS after filing your tax return instead of how we could have had that money all along! I used to do all our tax filings up until I extra-complicated our lives with an investment property, now I pay a CPA for the privilege of not spending a week making sure I didn’t make any expensive mistakes. This year was a whammy, though, we had a HUGE bill thanks to an unexpected event late in 2015 that I didn’t have enough time to account for.

How close are you to maxing out your 401K’s? I love that we max out my husband’s every year and hate that my job doesn’t offer any retirement plan so I’m on my own with a stinkin’ IRA every year but I take what I can get 🙂

Yep! That’s why I don’t do my own taxes, I figure I’m going to forget something.

Honestly I’m not THAT close to maxing our 401ks. My wife and I would have to contribute 20%+ into our accounts and we’re not just there yet. We do max out our Roth IRAs and do about 10% into our 401ks right now. As soon as we’re maxed out on our IRAs I plan to increase our 401ks accordingly 🙂

We ended up getting a larger than anticipated tax refund this year because of the increase in the standard deduction. We refinanced our home in the middle of last year and slid into a really low interest rate. Now that we are no longer paying a fortune in interest, our mortgage interest and property taxes ended up lower than the standard deduction, which removed our tax incentives to buy the house. Oh well. I guess we still save a bundle by not paying thousands extra in interest!

Ugh you have a great point and I’ve totally been procrastinating on doing it. I think changing your withholding is one of those things we know we should do but we think it’s more complicated than it actually is so we don’t do it. I recently felt that way about selling my car and was surprised to find that the process took less than a few days. Sometimes we create these invisible bars to stuff when we should just spend the 15 minutes and figure it out. Thanks for the post!

I actually feel like a hypocrite because we haven’t changed our W4 just yet!

I was about to change our withdrawals but a few things came up. My wife just recently adjusted our Flexible Spending Account and I’ve increased our 401ks significantly. I want to wait a month or so and then I can make my adjustments then 🙂